Apartment towers are seen in the southern Chinese city of Shenzhen August 28, 2015.

Reuters

China's “whack-a-mole” property market is making a comeback – but it seems the central government isn’t reaching for the hammer just yet.

Chinese authorities have been intensifying efforts to stimulate the property market since late 2014, concerned that prolonged weakness in sales and prices might worsen a supply glut in apartments in many cities and become a further drag on the economy.

But these measures, such as lower interest rates, have fueled sky-high property prices in larger Chinese cities, raising fears that localized property bubbles might be on the horizon.

Han Zheng, Shanghai’s Communist Party secretary, said earlier this week that the city will strengthen its property regulations in light of "irrational" home-buying sentiment that is driving up property prices.

This may sound like a recurrence of the frothy housing market of 2010-2011. But this time, fast-rising prices appear to be limited to larger cities such as Beijing, Shanghai and the southern boomtown Shenzhen.

"The third- and fourth-tier cities are still in destocking mode while property prices in the first-tier cities are skyrocketing," Hu Baosen, chairman of Zhengzhou-based Central China Real Estate, said on the sidelines of this week’s annual legislative meetings in Beijing. "When you talk about housing prices, you can't lump them all together."

For instance, average housing prices in Shenzhen have risen by an eye-popping 52% year-on-year as demand far exceeds supply, while in smaller cities, existing inventory levels may take seven or eight years to digest. Rather than a blanket tightening policy across the country, Chinese authorities have left it up to local governments in top-tier cities to bear responsibility for taming the market. One way is to significantly boost the supply of affordable homes.

The government has become more tolerant of rising average home prices, analysts say.

"Given the need for a healthy property market to underpin the economy and the aim of transferring leverage away from local governments and enterprises to the public, we believe it is highly premature to discuss the possibility of policy tightening," said Citi analysts Oscar Choi and Marco Sze.

"While some verbal warnings from officials about prices in prime cities would not be a surprise, the overall policy direction is likely to remain supportive," they added.